Mandatory code to guide commercial rent relief

Landlords will be forced to reduce commercial rents by the same proportion that the tenant’s revenue has fallen due to the COVID-19 outbreak, under a new mandatory code of conduct announced by the federal government today.

Prime Minister Scott Morrison said the code brought together a set of “good faith” leasing principles and supported the federal government’s business hibernation strategy.

Mr Morrison said the code would be legislated and regulated in each state and territory, and apply to tenancies where the landlord or tenant was eligible for the Jobkeeper program and had revenue of less than $50 million.

Principles of the code include landlords being barred from terminating leases or drawing on a tenant’s security, with reductions of rent in proportion to falls in tenant revenue, coming in the form of waivers or deferrals.

Mr Morrison said rent waivers must account for at least 50 per cent of the rent reduction, while rent deferrals would be repayable over the remaining term of the lease, or a minimum 12-month period.

Rent increases will be frozen under the code, landlords will not be able to enforce penalties on tenants who stop trading or reduce opening hours, landlords will not be able to charge interest on unpaid rent and legislative and administrative hurdles to lease extensions will be removed.

“The point here is simple, it is the same request we made of landlords and tenants about 10 days or so ago when I stood up on this issue, and that is that they sit down and they work it out," Mr Morrison said.

“This must be shared."

Mr Morrison said banks must provide support to landlords, particularly international banks that support many large landlords across Australia.

“We will expect those banks to be providing the same levels of support and cooperation as we are seeing from the Australian banks who are aware of the arrangements.”

Property Council of Australia chief executive Ken Morrison said the council would work closely with state and federal governments on the detail of the code.

Ken Morrison said there was no doubt that it would be difficult for many property groups to shoulder the financial burdens of the scheme.

“There are a number of changes that should be made to the Code, including to protect the position of small property companies,” Ken Morrison said.

Ken Morrison said the Property Council would be seeking further detail from governments on their plans for meaningful land tax support and other assistance for commercial property owners.

“We must avoid a situation where too much of the burden of delivering relief for tenants is expected to be carried by commercial property owners, which include many smaller investors and businesses themselves," he said.

“Similarly, larger property owners have complex financial obligations of their own, including to offshore lenders, which must be given careful attention.”

The Australian Retailers Association, National Retail Association, Pharmacy Guild of Australia, and Shopping Centre Council of Australia jointly welcomed the prime minister’s announcement.

“The model announced by the Prime Minister today is sensible and proportionate. It will ensure – to the greatest degree possible – that businesses who suffer a major downturn have the best chance of surviving,” National Retail Association chief executive Dominique Lamb said.

“And that is good for both tenants and landlords. Just as we want to see businesses survive to keep employing their staff, property owners will also want to see the retail sector survive,” Ms Lamb said.

Shopping Centre Council Association chief executive Angus Nardi said many of the principles had already been agreed to by the association, particularly those around non-termination of leases for non-payment of rent.

“We welcome the approach to proportionality, which we understand provides a set of guiding principles and examples, which will ultimately be negotiated on a case-by-case basis,” Mr Nardi said.

“The SCCA’s key focus is on small, medium and family businesses.

““Every day, our members are having hundreds of conversations with their retailers.

“Like many other industries, centre owners are receiving high volumes of requests for assistance. These are being worked through as quickly as possible.”

Residential tenancies will not be covered by the code and instead be regulated by state and territory governments, Mr Morrison said, with national cabinet focused on the commercial sector because of its economic impact.

Real Estate Institute of Australia president Adrian Kelly said he was disappointed by the lack of a uniform approach across Australia.

“We now face the potential situation where Australians will be treated differently depending on where they reside.

“This will add to the confusion and most likely there will be the misinterpretation of messaging.”

Mr Kelly said residential tenancies had a similar national impact to those in the commercial sector.

“For residential it is a social as well as economic impact – after all we all live in dwellings and not all of us either own or lease commercial property,” Mr Kelly said.

“REIA requests that further consideration be given to a national approach to residential real estate.”

Real Estate Institute of Western Australia president Damian Collins similarly urged federal and state governments to consider more support for the residential sector.

Mr Collins said there were more 250,000 rental properties in Western Australia and thousands of West Aussies who had lost their jobs since the pandemic started.

“We need to see emergency residential rent relief for tenants who lose their jobs as a result of coronavirus, to allow them to keep paying rent for the next six months. Mr Collins said.

“While the state government clearly has an enormous amount to deal with, the issue of residential tenancies is vital to hundreds of thousands of West Australians and needs to be resolved soon.

“It’s your mum and dad investors and their tenants that may feel the brunt if the landlord can no longer afford to pay their mortgages. Most property owners are already willing to help tenants who find themselves in financial stress because of coronavirus, but the burden should not fall back entirely on the owner.”